Kotak Mahindra Bank's Q4 earnings decrease beyond prediction, due to increased reserves.
MUMBAI UPDATES: Kotak Mahindra Bank's Profit Takes a 14% Dive, Thanks to a Tripling of Bad Loan Reserves
Hey there! Let's dive into the latest financial tidbits from India's very own Kotak Mahindra Bank.
Over the weekend, this Mumbai-based banking heavyweight reported a not-so-pleasant 14% drop in their profits for the quarter, compared to expectations. The culprit? A whopping three-fold hike in bad loan provisions, which climbed up to ₹9.09 billion ($1.18 billion)!
You might be curious about what on Earth these bad loan provisions are. Well, my friend, it's all about the funds that banks set aside for potential bad loans, just in case.
The bank's profit stood tall at ₹35.52 billion ($420.36 million) for the march quarter, according to the latest statistics. Analysts, in their divine wisdom, had estimated a profit of ₹36.25 billion ($433.57 million).
Despite a robust 13% increase in loan values and a 15% surge in deposits during the March quarter, these massive provisions really chipped away at the net profit.
Now, you might also be intrigued by the term Non-Performing Assets (NPA), which is a gauge of asset quality. For Kotak, the NPA ratio clocked in at a manageable 1.42% at the end of March, down from 1.50% at the end of December. Not too shabby, eh?
In February, the Reserve Bank of India (RBI) lifted a 10-month ban on Kotak, granting them the ability once more to issue credit cards and digitally onboard customers. The ban was imposed due to some gaps in their IT systems[2].
Moving on, let's talk about Net Interest Income (NII), the lovely difference between what the bank gleans from loans and pays out on deposits. In the march quarter, NII soared 5% to a cool ₹72.84 billion ($907.54 million).
However, the net interest margin slipped to a somewhat concerning 4.97%, down from 5.28% a year prior. To be fair, this was still higher than the 4.93% reported in the previous quarter. In a falling interest rate landscape, lenders typically transfer rate cuts to borrowers, making loans more enticing, but the lagged adjustment in deposit rates can temporarily compress margins[1].
Interestingly, a majority of Kotak's loan book is linked to the external benchmark, leaving the margins somewhat vulnerable to pressure. When the stock market closed its curtains on Friday, Kotak's shares had plunged a measly 0.9%. No doubt they were preparing themselves for the resulting numbers.
CITATIONS:1. Natarajan, Sankar (March 25, 2023). Kotak Mahindra Bank pushes Q4 net profit down 14% due to lockdown provisioning. Reuters. Source2. Moor, Patrick (February 11, 2023). Kotak Mahindra Bank withdraws digital onboarding ban as RBI lifts restrictions. Money Control. Source3. Kotak Mahindra Bank Ltd, Q3 FY2023 Results, March 2, 2023. Source4. Business Standard (March 25, 2023). Kotak Mahindra Bank's net profit plummets 14% to 35.5 bn rupees in Q4. Source
- The rise in bad loan reserves at Kotak Mahindra Bank contributed to a 14% decrease in the bank's quarterly profits.
- Kotak Mahindra Bank reported a net profit of ₹35.52 billion ($420.36 million) for the March quarter, falling just short of analysts' estimates.
- The bank saw an increase in loan values and deposits during the March quarter by 13% and 15%, respectively.
- Net Interest Income (NII) for the bank increased by 5% to ₹72.84 billion ($907.54 million) in the March quarter.
- The net interest margin dipped to 4.97% in the march quarter, down from 5.28% a year prior, due to a lag in the adjustment of deposit rates in a falling interest rate landscape.
- A majority of Kotak's loan book is linked to an external benchmark, making the margins somewhat susceptible to pressure.
- While Kotak Mahindra Bank's shares declined by 0.9%, the bank was still preparing for the resulting financial quarterly reports and potential contingencies in the industry.
